THERMOECONOMICS - Vocat International Ltd

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22 Copyright: John Bryant, VOCAT International Ltd 2012, for personal use only. small or going negative, whereby changes in the relationship PNV n = C are magnified. Figure 5.11 Elastic index, money entropy change and interest rates (3 month treasury rate). (Figures calculated from annualised 4-quarter moving averages, except interest rates which as actual)
Copyright: John Bryant, VOCAT International Ltd 2012, for personal use only. Elastic Index n . 4 3 2 1 0 -3 -1 1 3 5 7 -1 -2 -3 ω = 0.75 Isentropic curve n = γ = (1+ω)/ω) Value Capacity Coefficient ω (years) Figure 5.12 Elastic Index n as a function of value capacity coefficient ω for nil entropy change 5.3 Money Entropy and Interest Rates To formulate the relationship of interest rates to the motivating force in an economy, derived in chapter 4 as entropy change, our starting point is to go back to the concept of active and inactive stocks, that culminated in a relationship between entropy change, output and constraints acting on output. A similar approach could be applied regarding the constraining forces acting on the demand for money balances as, in any transaction period, money continually flows out into the economy and back again, and in the opposite direction to output value flow. It is generally accepted among economists that the demand for money is positively related to income and output, but negatively related to interest rates, and the standard textbook representation of demand for money is by reference to a curve of liquidity preference, a concept pioneered by Keynes (1936) in his book ‘The General Theory of Employment, Interest and Money’. Liquidity preference is effectively a curve of utility of money turned upside down, as in figure 5.13. At this point it should be stated that we are not arguing in favour of either a Keynesian or Monetarist approach to economics, and whether management of the money supply or adjustments in fiscal spending via an IS/LM model [Investment-Saving / Liquidity preference-Money supply, Hicks, Hansen (1936)] provide the means to keep an economy in balance. We are, 23
Page 1 and 2: THERMOECONOMICS A Thermodynamic App
Page 3 and 4: Contents Preface 1 Introduction 1 1
Page 5 and 6: Preface This book, first published
Page 7 and 8: Copyright: John Bryant, VOCAT Inter
Page 27: Copyright: John Bryant, VOCAT Inter
Page 49 and 50: INDEX Copyright: John Bryant, VOCAT
Page 51: Copyright: John Bryant, VOCAT Inter

THERMOECONOMICS - Vocat International Ltd

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